A recent Supreme Court of NSW decision is providing guidance on the Personal Property Securities Register, highlighting the necessity to register security interests in property as soon as possible, especially when that property is in the possession of another party, writes partner TERRY MORGAN.
The Personal Property and Securities Act, 2009 (the Act) has seen a major change to the area of property ownership and security interests in all property, that is not real property. After many years of planning and implementation, the Personal Property Securities Register (PPS Register) officially came into effect on 30 January 2012.
As a result of a recent decision in the Supreme Court of NSW we now have New South Wales case law to provide guidance on interpreting the provisions of the Act and how it impacts on the security interests of property covered by the Act. This decision is known as the Maiden case.
Simplified, the Maiden case concerned:
- Company A acquired excavation machinery and provided that machinery to Company B pursuant to a lease type transaction;
- Company B used the excavation machinery in the conduct of its business;
- Company B, as a result of cash flow difficulties entered into a financing arrangement with Company C;
- Company C, as part of the financing arrangement, prepared documents including the creation of a security interest (formerly known as a charge) over the assets of Company B;
- Company B signed those documents to secure the financial accommodation being provided by Company C;
- Company C registered the Security Interest over the assets of Company B on the PPS Register. The security interest granted by Company B was over all of the assets of Company B including the excavation machinery;
- Company B defaulted in its financial arrangements with Company C; and
- Company C exercised its rights under the security interest and appointed a Receiver to Company B.
At the time that Company B entered into the Security Interest Agreement, and defaulted in the financial arrangement with Company C, Company A had not registered its interest as Lessor of the excavation machinery to Company B, on the PPS Register.
Company A sought to establish that it was the owner of the excavation machinery and therefore had a better claim to the excavation machinery than the Receivers appointed by Company C.
The Court found that the Receivers appointed by Company C had a better claim to the excavation machinery than Company A as the Lessor. Accordingly, the Receivers were entitled to take possession of the excavation machinery and sell that machinery to satisfy the debt outstanding to Company C. Company A simply becomes an unsecured creditor for the balance of the amount outstanding by Company B to Company A.
The circumstances above are a very brief description of what was a complex quest on.
The Maiden case highlights the need for any parties who are entering into financial transactions to enquire as to whether those transactions require the registration of an interest on the PPS Register to protect the interest of the various parties.